As Tokyo shares fall back from their recent highs, the Bank of Japan has been significantly stepping up its purchases of domestic exchange-traded funds.

While the central bank is well known for its massive purchases of Japanese government bonds as a part of its monetary easing programme, it also buys ETFs—albeit in much smaller quantities—that track the Nikkei Stock Average and the broader Topix index.

Through a trustee, the central bank purchased a combined ¥92.4 billion ($904.2 million) in ETFs over the first six business days of August. That's the BOJ's longest and largest consecutive buying streak since it started purchasing ETFs in December 2010.

Many traders suspect that it may not be a coincidence that the central bank is scooping up ETFs at a time when both the Nikkei and the Topix are spending considerable amounts of time in negative territory. Speculation is rife that the BOJ is following an unwritten rule, called "the 1% rule" by traders, where it buys ETFs after the Topix index falls around 1% in the morning session.

While the BOJ doesn't disclose what criteria it uses when it makes ETF purchases, two market participants say that they thought the central bank was following that rule last week when it actively bought ETFs.

As the Tokyo stock market had been failing to regain momentum in recent weeks, investors are hanging their hopes on the public sector. In addition to the BOJ's ETF buying operations, there are expectations that the Government Pension Investment Fund will increase its investment in domestic stocks.

"The record amount of ETF buying seen by the Bank of Japan—combined with a hefty rise in the GPIF's stock allocation—not only serves to hold up the floor for the equities market, it also goes a long way to keeping public support levels for (Prime Minister Shinzo Abe ) respectable," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Fujito was referring to the relatively high public approval ratings for Abe's government since he came into power in late 2012 that coincide with the extended bull run that Tokyo shares have seen.

Related

"The current 'Abenomics' experiment could come tumbling down if political support erodes, so the collusive impact of both efforts is critical to keep the ship both afloat and on course," he added.

But some analysts are skeptical about how effective the BOJ's ETF purchases will be in the long term.

"The BOJ can only support the bottom, but stock valuations can only be raised by the values of each company," said Takahiro Sekido, a strategist at the Bank of Tokyo-Mitsubishi UFJ. He added sharp rises in domestic shares are unlikely unless investors are able to see improvements in business conditions in the years ahead.

The BOJ has said it plans to increase its ETF holdings to ¥3.5 trillion by the end of this year. As of Aug. 10, it held ¥3.122 trillion.